Trading silver is a popular choice for diversification. Is it actually that good or is there any risk that traders should be more aware of?

When it comes to precious metal trading, most people would think of gold. This is not odd considering gold is considered a safe haven. However, silver is also a type of precious metal that is often used in jewelry, mirrors, and many more. Nowadays, it is also used in many technologies such as batteries as well as other industrial products. The many uses of silver have increased its presence in the trading industry and that is why trading silver has been increasingly regarded by many traders when it comes to investment diversification.

trading silver


The Price History of Silver

The price of silver has increased almost 30-fold over the past century. Over the past 100 years, it has even risen about 67% on an inflation-adjusted basis. This shows that it has significantly outperformed the US inflation rate. While that sounds like a good progress, the price of silver is not always stable. In fact, during the economic downturn after the 9/11 incident, silver dropped as low as $7.04. It also fell to $5.31 during the Great Depression in 1931.

See also: Commodity Price Today

That being said, the price of silver has had several major booms. In 1980, silver reached all-time high thanks to Bunker and William Hunt attempting to corner the global silver market. The two brothers purchased 100 million ounces of silver and cause the price to soar as high as $52.5 or about $169.5 in today's price. In 2011, the silver price also spiked due to concerns over The Fed's quantitative easing program and geopolitical instability in Europe following the global financial crisis of 2008 and 2009.


Why Do People Trade Silver?

As a trading asset, silver is considered ideal for long-term trading. Not to mention that silver is available for hedging. During an uncertain economic situation, people would turn to silver along with gold and other safe-haven assets to protect their investment. In addition to that, there are other reasons why silver trading is worth trying:


1. Risk Mitigation

A lot of traders prefer trading silver because it could help them mitigate risks in the market. For example, silver could perform better than stocks and bonds when there is a global political situation. The reason is that stocks, bonds, and currencies are potentially at risk if central banks lower interest rates or increase the money supply. On the other hand, silver could perform much better than other financial assets during periods of heavy inflation.


2. Silver Global Supply

It is widely known that the production of silver has stagnated in recent years. It became even worse during the COVID-19 pandemic while the silver supply itself has been pretty low since 2014. That means there is only a small number of silver in circulation. While it's not too good for production costs, limited supply surely works great for traders who are on the bullish side.


3. Increasing Demand for Silver

Ever since the old days, there is a bet on the growing global industrial demand for metals. Truth is, there has been an increase in silver trading demand these days and this has caused a significant increase in price, especially considering the global supply of silver that remains constrained. One of the reasons why the demand is getting higher is that silver is an important material in many industries.


4. Diversification

Diversification is a popular way to protect one's portfolio from unwanted movements in the market. It is also a way to enrich the portfolio's composition. There are many ways a trader could choose assets to diversify portfolios. The key is to always include at least a stable asset in case of uncertain economic situations. Silver is a tangible asset and less correlated to other markets so it can protect traders during such conditions.


Best Ways to Trade Silver

There are different ways to invest in silver. For example, purchasing silver bullion is viable for traders who want to purchase a physical piece of silver from a trusted exchange or local dealers. However, keeping physical silver can be difficult for some people. That is why there are other ways of trading silver:


1. CFD

One of the most common ways for trading silver is through the use of a Contract for Difference (CFD). With CFD, traders can speculate on the price of silver without the need for owning the asset itself. One of the best advantages of trading silver CFD is that traders can access the underlying asset at a lower cost than buying the asset outright, have ease of execution, and have the ability to go long or short. Unfortunately, not all brokers offer the best condition to trade silver CFD.

One of the best brokers for trading silver CFD is IC Markets. This broker offers a lot of CFD products including precious metals like gold and silver. They also provide tight pricing as well as a flexible lot to make sure traders can get the best conditions when they trade silver CFD. Traders can also gain access to leverage of up to 1:200 with no commission fees. The IC Markets' CFD products are available on MT4, MT5, and cTrader.

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IC Markets is an online forex broker operating under the company of International Capital Markets Pty Ltd. Traders under the Australian jurisdiction are provided with the trading service of IC Markets AU that is headquartered in Australia and licensed by the Australian Securities and Investments Commission (ASIC).

On the other hand, non-Australian traders who open an account in this broker are registered under IC Markets SEY that is based in Seychelles, and regulated under the Seychelles Financial Services Authority (SFSA). The dual operation is a result of the relatively new rules from ASIC that prohibit their regulated broker to offer trading services outside Australia.

Classified as an ECN broker, IC Markets provide clients with MetaTrader 4, MetaTrader 5, cTrader as platform trading options. This broker also follows market trends to include Cryptocurrencies as one of its products, enriching its already wide selection of trading assets that include Currencies, Indices, Metals, Energies, Softs, Stocks, as well as Bonds.

The minimum deposit in IC Markets is in the middle range compared to other ASIC-regulated brokers, as it reaches $200 for every client. Market analysis materials are also prepared regularly for trading insights on IC Markets's official website, proving their competence to serve their traders with important contents created by market experts that work specifically for them.

For payment methods, IC Markets allows funding and withdrawal via wire transfer, credit card, PayPal, Skrill, Neteller, FasaPay, UnionPay, as well as Bitcoin via BitPay. The more interesting aspect from this broker is its multi-base currencies that include USD, AUD, EUR, GBP, SGD, NZD, JPY, CHF, HKD, and CAD.

As the trading technology in IC Markets is highly equipped with co-located servers and extremely low latency (especially on cTrader), the broker is widely known for its capability in hosting traders with the special needs for high-frequency trading as well as scalping.

To sum up, IC Markets is a fitting destination for active traders looking for a well-regulated broker. IC Markets is also flexible in terms of base currency and payment methods, signaling their commitment to welcome traders beyond their home country. As of late 2019, IC Markets provided their website in 18 international languages including English, Korean, Indonesian, French, Spanish, Italian, Malay, German, and Chinese.


2. Futures

Futures is a derivatives financial contracts that obligate parties to buy or sell an asset at a predetermined future date and price. The contract stated that the buyer and the seller must trade the underlying asset at a price that has been agreed upon before. This way, futures can be used for hedging or trade speculation.


3. Silver ETFs

ETFs (exchange-traded funds) is a financial instrument that operates much like mutual funds. The difference is that ETF's share prices can fluctuate all day. Normally, EFTs track a particular index sector, including commodities like silver. The best part of trading silver ETF is that it has much lower expense ratios and fewer broker commissions than buying stocks individually. Most traders use Dollar-Cost Averaging or spreading out investment costs over a period of time to make sure they can trade ETFs safely.


4. Shares in Silver Mining Companies

Another method for trading silver is to buy shares of silver mining companies. This is not exactly trading silver indeed, but it still allows traders to gain some profit from silver prices. As the price of silver increases, additional revenues should flow to the bottom line of the silver mining companies as profits. However, traders should also consider the market performance of these companies. The top three silver stocks with the best values at the moment are Silvercorp Metals Inc. (SVM), Fortuna Silver Mines Inc. (FSM), and Pan American Silver Corp. (PAAS).


Risk of Silver Trading

While it's a good choice to diversify portfolios and hedge against loss, silver is also subject to the law of supply and demand. This can result in unpredicted and sharp changes in price. Another risk to consider is fraud, especially because there are many types of silver investments in derivatives. So, make sure to avoid a broker that offers guaranteed returns or one that sends spam emails.


Apart from the qualities in silver trading, trading with a good broker for metal trading in general is essential to ensure a successful diversification. Find out the options in 7 Top Brokers for Metal Trading.